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Want to invest like Warren Buffett? Ignore pundits and 'never risk permanent loss of capital,' says the billionaire

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Warren Buffett ahead of the Berkshire Hathaway Annual Shareholder's Meeting in Omaha, Nebraska.
David A. Grogan | CNBC

If you haven't read Warren Buffett's annual letter to shareholders, which the Berkshire Hathaway chairman released on Saturday, do yourself a favor.

While you're at it, read a few of the back issues, too. Within them, you'll find the source material for many of the pearls of investing wisdom you've seen floating next to pictures of Buffett's face on the internet for years. After all, who wouldn't want to learn all they could from one of the greatest investors of all time?

In the meantime, here are a few key lessons for investors from this year's letter.

Ignore market punditry

In the 2024 letter, Buffett imagines his target reader as someone similar to his sister, Bertie — a wise and financially savvy long-term investor in Berkshire. While she has some knowledge of how accounting works, Buffett writes, she wouldn't pass a CPA exam.

A major asset for Bertie and investors like her: "She is sensible — very sensible — instinctively knowing that pundits should always be ignored," says Buffett. "After all, if she could reliably predict tomorrow's winners, would she freely share her valuable insights and thereby increase competitive buying? That would be like finding gold and then handing a map to the neighbors showing its location."

It's an astute observation, and one worth remembering the next time a pitch for a hot stock, or cryptocurrency or an NFT comes across your timeline. Or when someone on YouTube tells you their day trading strategy will make you rich. They're often looking to make money from you, rather than for you.

Next time you get such a pitch, be like Bertie. "Bertie understands the power — for good or bad — of incentives, the weaknesses of humans, the 'tells' that can be recognized when observing human behavior," Buffett writes. "She knows who is 'selling' and who can be trusted. In short, she is nobody's fool."

Stick with U.S. stocks for the long term

Buffett often recommends that non-professional investors gravitate toward index funds that seek to replicate the performance of the U.S. stock market.

The advantages are twofold. By spreading your portfolio across a wide array of stocks, you vastly decrease the possibility that a large bet on a particular investment could go south and tank your performance.

Plus, if markets remain true to their historical upward trajectory, you should be able to earn a substantial return over time.

"I can't remember a period since March 11, 1942 — the date of my first stock purchase — that I have not had a majority of my net worth in equities, U.S.-based equities. And so far, so good," Buffett writes.

When he decided to invest, the Dow Jones Industrial Average had fallen below 100 points. Buffett says he was down about $5 on the first day. But he wasn't in the red for long.

"Soon, things turned around and now that index hovers around 38,000," Buffett writes. "America has been a terrific country for investors. All they have needed to do is sit quietly, listening to no one."

Keep your cool in chaotic markets

The history of American markets has also included dramatic downslides, a phenomenon that has only been amplified in recent years by the speed at which information travels on the internet.

That isn't changing anytime soon, says Buffett: "Such instant panics won't happen often, but they will happen."

In a section called "Our Not-So-Secret-Weapon," Buffett says that such downturns have historically been buying opportunities for Berkshire to snap up quality stocks at a discount.

As investors, Buffett and his colleagues have been able to respond to panicked markets with "large sums and certainty of performance," he writes. Perhaps more importantly, they haven't allowed short-term noise in the market to tempt them to sell their assets at a low value.

"One investment rule at Berkshire has not and will not change: Never risk permanent loss of capital," Buffett writes. "Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been — and will be — rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes."

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